Experts Offer Their Best Tax-Saving Advice

You’ve likely already implemented various strategies to save money within your budget throughout the year. But what about finding ways to reduce your tax bill?

While you can’t eliminate taxes altogether, there are strategies you can apply to lower one of your largest annual expenses. To help you save money on your taxes this year, we consulted five financial experts for their top tips—and they go beyond just utilizing tax deductions and credits.

Josh Bennett: Keep Thorough Records

“Always ‘CYA’ with your tax planning,” advises Josh Bennett, CEO of Vincere Wealth Management and Vincere Tax. “This is crucial when aiming to minimize your tax liability. The more aggressive you get, the more likely the IRS will take notice.

“The tax code is packed with opportunities to reduce taxes, as long as you follow the rules. You can be quite aggressive in cutting your tax bill, but without proper bookkeeping or documentation, all of your hard work could be wiped out in the event of an audit. Not to mention, you could face hefty penalties.

“No one enjoys organizing taxes and paperwork, but good documentation—such as keeping receipts—lets you confidently pursue tax-saving strategies. Don’t rely on your own knowledge; seek out a good bookkeeper or tax preparer to help.”

Joe Calvetti: Take Advantage of Low-Income Years

“There’s value in not just looking for ways to reduce taxes each year, but also in minimizing your lifetime tax burden,” explains Joe Calvetti, CPA and founder of Still River Financial Planning. “If you find yourself in a temporary low-income year, consider how to move income into that year or delay deductions to make the most of a lower tax bracket.

“You might experience a low-income year if you have a spouse who leaves work to care for children, or if you retire, take a sabbatical, or start a new business.

“In this situation, it may be beneficial to shift income into the low-income year—for example, by exercising stock options. You can also take advantage of capital gains harvesting by selling investments in a brokerage account that have appreciated, allowing you to pay a lower tax rate on the gain and adjust your cost basis, reducing future taxable gains.

“Additionally, contributing to Roth retirement accounts could be a smart move in a low-income year. Unlike traditional pretax accounts, Roth contributions are made after tax, and converting some pretax retirement savings into a Roth IRA can help you pay taxes at a lower rate.”

Amy Irvine: Think Long Term

“Don’t just focus on the short-term tax picture; consider the long-term,” advises Amy Irvine, owner of Rooted Planning Group.

“Sometimes, it’s worth paying more tax now if it helps you save significantly in the future. With tax rates set to rise in 2026, it may be wise to contribute to Roth IRAs or 401(k)s now, while current rates are lower.

“Many people contribute to their 401(k)s for the tax deductions, but they may face large required minimum distributions (RMDs) in retirement, which can increase their tax rates, affect property tax credits, and raise Medicare premiums. A Roth account can help mitigate future tax liabilities.

“Contributing to a general brokerage account can also be a good option. While you’ll pay taxes on it now, the capital gains tax rates (typically 15% or 20%) are still lower than ordinary income rates, making it a more favorable option than withdrawing from tax-deferred accounts.”

Troy Sharpe: Utilize IRAs

“Non-working spouses can still save for retirement,” says Troy Sharpe, founder of Oak Harvest Financial Group. “If one spouse is working and the couple files jointly, the non-working spouse can open and contribute to a traditional or Roth IRA.

“In 2023, the IRA contribution limit is $6,500 (increasing to $7,000 in 2024 and 2025), with an additional $1,000 catch-up contribution for those age 50 and older. A traditional IRA can provide an additional tax deduction, while Roth IRAs offer tax-free growth as long as the funds are not withdrawn prematurely.”

Rebecca Walser: Maximize Tax-Loss Harvesting

“Many people think of tax-loss harvesting at the end of the year to offset investment gains,” explains Rebecca Walser, CEO of Walser Wealth Management. “But don't overlook the added benefit of donating appreciated assets to charity. This strategy provides a double tax benefit: it counts as a charitable deduction on Schedule A, and the fair market value of the donation is deductible—even if it exceeds your basis in the asset.

“For example, if you purchased stock for $100,000 and it is now worth $250,000, donating it to charity can allow you to deduct the $250,000, even though you never recognized the $150,000 gain as income and won’t pay tax on it.”

How to Reduce Taxes on Investment Gains

One way to lower taxes on investment gains is by holding assets for more than a year before selling them. Long-term capital gains are taxed at 0%, 15%, or 20%, depending on your income level, which is generally more favorable than short-term capital gains, which are taxed at regular income tax rates. Additionally, tax-loss harvesting can offset capital gains taxes if you sell securities at a loss.

How to Avoid Capital Gains Tax by Reinvesting

If you sell investment real estate, the capital gains are typically taxable in the year of sale, unless you use Internal Revenue Code Section 1031 for a like-kind exchange. In this case, reinvesting the proceeds in a similar property allows you to defer paying taxes on the gain until the new property is sold. Make sure to consult a tax professional to understand all the rules surrounding a 1031 exchange.

The Bottom Line

Saving on taxes involves more than just claiming deductions and credits. Experts like those above can help you uncover additional strategies that might have a bigger impact on your tax situation. These strategies include donating appreciated assets to charity for a double benefit, opening an IRA for a non-working spouse, or contributing to Roth accounts while tax rates are low. Working with a tax preparer or financial planner can help you identify more ways to save on taxes throughout the year.

 

 

 

 

 

 

 

 

 

Paraphrasing text from "Investopedia" all rights reserved by the original author.